NZ Dollar Outlook: Kiwi may gain as interest rate hikes loom

NZ Dollar Outlook: Kiwi may gain as interest rate hikes
loom

By Tina Morrison

March 10 (BusinessDesk) –
The New Zealand dollar may rise in volatile trading this
week as investors are lured by better yields ahead of an
expected hike in interest rates by the Reserve Bank and the
prospect of further increases.

The kiwi may trade between
82.75 US cents and 86.35 cents this week, according to a
BusinessDesk survey of 11 traders and strategists. Five
expect the currency to advance while four forecast a drop
and two expect little change. The kiwi recently traded at
84.65 US cents, from 84.38 cents at 8am.

Reserve Bank
governor Graeme Wheeler is expected on Thursday to start on
a path of continuing rate increases amid concern that
inflation will accelerate as the economy gains momentum.
Still, this week’s hike is already priced in to markets
and traders will be more focused on the outlook for future
rate rises and how concerned the bank is about the elevated
local currency.

“It’s priced in but you may still get
a spike on the day,” said Tim Kelleher, ASB Bank head of
institutional FX sales in New Zealand. “I’m wary about
how bearish or hawkish some of the banks are on their rate
forecasts.”

The central bank won’t want to hike rates
so far as to “crush” the economy and will also be
cognisant of the higher currency, Kelleher said.

Governor
Wheeler will raise the official cash rate a quarter point to
2.75 percent, according to 15 of 17 economists in a Reuters
survey. Of the two outsiders, one expects a 50 basis points
rise this week while the other says the bank will likely
wait till June to hike.

The Reserve Bank has held the
cash rate at a record low 2.5 percent since March 2011, a
move similar to most of the world's major central banks
seeking to stimulate economic growth after the global
financial crisis froze credit markets.

Given the rate hike
is widely anticipated, most traders will be focused on the
central bank’s forecasts for future rate movements.
Economists polled by Reuters expect the benchmark rate will
be at 3.75 percent by March next year.

Geopolitical
tensions in Ukraine and uncertainty about Chinese growth may
weigh on the kiwi this week, traders said.

Also scheduled
for release in New Zealand this week are February data on
house prices, electronic card spending, food prices and
manufacturing.

The Real Estate Institute house price index
tomorrow will be watched for signs of weakness after the
January data suggested price momentum faltering, perhaps
reflecting restrictions on high debt mortgage
lending.

Electronic card transaction data is also due
tomorrow while the food price index is due Thursday. On
Friday, the BNZ-BusinessNZ PMI is expected to show continued
strength in manufacturing.

In Australia this week, the
February NAB business confidence survey tomorrow may show
continued strength after improving the previous two months
although the Westpac-MI consumer sentiment survey the
following day may decline on concern about the economic
outlook and jobs.

Thursday’s Australian employment data
may show a bounce in February following weakness while the
unemployment rate remains at 6 percent.

Traders will keep
an eye on a speech by Reserve Bank of Australia deputy
governor Philip Lowe in Sydney on demographics, productivity
and innovation on Wednesday night, in a session open to
media questions.

Elsewhere this week, the US February
retail sales data on Thursday may lift after
weakness.

Meanwhile, central banks in Japan, Korea and
Indonesia are expected to keep the status quo while Thailand
may cut rates by 25 basis points to support the economy amid
political turmoil, according to Moody’s
Analytics.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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